Shares in Hilton Food Group, the UK meat supplier, took a hit today (9 September) after the company issued a note of caution about its near-term outlook. However, in the main, City analysts believe in Hilton’s fundamentals.

Hilton operates not just in the UK but across Europe and it is battling fragile consumer sentiment, as well as the impact of exchange rate on sales made outside its domestic market.

However, higher-than-expected costs from the expansion of a plant in the UK to supply Tesco has been thrown into the mix, prompting Hilton to this morning announce it expects to “deliver levels of profitability similar to those achieved in 2013”.

That statement, which came alongside Hilton’s first-half results, prompted analysts to downgrade their forecasts for the company’s profits for the 2013/14 financial year.

Shore Capital analyst Darren Shirley said the stockbrokers were “looking for reasonable growth” but had “brought our numbers to flat, which is a 6% downgrade”. Shirley said the downgrades from analysts across the market were of a similar magnitude.

Charles Pick, equity research director at Numis Securities, a broker to Hilton, said he had expected the company’s net income to rise 8% in 2013/14. Pick said Numis estimates the combined start-up costs from the UK plant extension and the building of a factory in Australia would now be GBP3m (US$4.8m), rather than GBP2.1m.

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Pick trimmed his target price on Hilton from 592p per share to 450p per share. Shares in Hilton were down 4.29% at 440.25p at 13:08 BST.

Pick also said the higher start-up costs meant Numis had reappraised its profit projections for Hilton for the next two financial years.

“We now assume net income is flat at GBP17.8m in 2014 and that the growth percentage we had expected hitherto for each year is pushed out by around 12 months,” Pick wrote in a note to clients. “So net income in 2015 could now be circa GBP19.3m (in lieu of the GBP25.3m we had envisaged), and in 2016 could now be circa GBP25m (instead of the GBP27.7m we had expected).”

Hilton has not made any public disclosure about its guidance beyond its current financial year.

New business in the UK and geographic expansion – notably in central Europe and in Australia – have driven Hilton’s recent growth. In Australia, Hilton and retail partner Woolworths Ltd is building a new packing facility, which although seen as a reason for its caution on near-term profits, looks set to be a factor in the company’s growth prospects. The group believes the geographic spread of its business is one of its strengths.

However, like many a food company, weak consumer spending across a number of markets has weighed on Hilton’s sales. In the six months to 13 July, Hilton also cited lower raw material prices, which put pressure on the price for which it can sell its own products. The company pointed to exchange rates, which has become an increasingly important variable, with over two-thirds of its sales now made in currencies other than sterling. All the currencies in which Hilton trades have depreciated against the UK pound.

Nevertheless, in the main, the City remains positive about Hilton’s longer-term prospects. One analyst who chose to remain anonymous said the deal with Tesco was “creating issues for the shorter term” but acknowledged the agreement would be “good for the longer term”.

Pick at Numis and Shirley at Shore Capital were more upbeat about the outlook for Hilton. “This group’s merits – a strong organic growth record, bright prospects for the JV in Australia, strong cash generation etc. – remain,” Pick wrote.

Shirley suggested today’s announcement was a bump in the road for a business, facing some tough trading conditions.

“There’s very little consumer-driven growth across the market at the moment. That’s not their fault. Unfortunately some of the customers they are operating with in those markets have retrenched from a new space perspective, so they are not even getting the addition of space to give them a benefit. They’ve got to try and gain share within their customers and they’re doing that to reasonable effect,” he told just-food.

The Shore Capital analyst, looking further ahead, said he believed Hilton had the resources to add to its markets. International expansion remains on Hilton’s radar, something the company’s management was keen to get across to investors today.

“If you look at the core basics of the business, it’s got very strong cash-flows, debt is probably going to peak at around GBP12-13m this year and be virtually non-existent next year, so they’ve got plenty of ammunition and firepower if another retailer or country was going to come along for them in which to invest another GBP40-50m in order to give them another leg of growth for the next three to four years,” he said. “It’s a good company. I would suggest it’s just a delay in their growth profile, rather than anything more fundamental than that.”